Housing policy in the United States an introduction

Housing Policy
in the United States

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Housing Policy
in the United States
AN INTRODUCTION

ALEX F. SCHWARTZ

New York London

Routledge is an imprint of the
Taylor & Francis Group, an informa business

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Published in 2006 by

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Schwartz, Alex F., 1957Housing policy in the United States : an introduction / Alex F. Schwartz.
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Includes bibliographical references and index.
ISBN 0-415-95030-9 (hb : alk. paper) -- ISBN 0-415-95031-7 (pb : alk. paper)
1. Housing policy--United States. 2. Housing--United States. 3. Housing--United States--Finance. 4.

Low-income housing--United States. 5. Public housing--United States. 6. Rental housing--United States.
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CONTENTS
1

Introduction

1

2

Trends, Patterns, Problems

11

3

Housing Finance

47

4

Taxes and Housing

69

5

The Low-Income Housing Tax Credit

83

6

Public Housing

101

7

Privately Owned Rental Housing Built with Federal Subsidy

129

8

Vouchers

149

9

State and Local Housing Policy and the Nonprofit Sector

177

10

Housing for People with Special Needs

205

11

Fair Housing and Community Reinvestment

215

12

Home Ownership and Income Integration

251

13

Conclusions

269

References

277

Index

299

V


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Dedicated to the memory of
Gale Cincotta
Co-Founder, National People’s Action
and National Training and Information Center
and
Cushing Dolbeare
Founder, National Low Income Housing Coalition

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ACKNOWLEDGMENTS
This book grew out of my course on U.S. housing policy, which I have taught since 1993 at
the Milano Graduate School of Management and Urban Policy at New School University.
My thanks go to the students who took the course over the years. I have learned much
from them and am gratified to see so many enter the fields of housing policy and community development. I am also grateful for the insights and inspiration provided by my teachers and senior colleagues in the field of housing policy. They include David Listokin,
George Sternlieb, Susan Fainstein, Rachel Bratt, Langley Keyes, Avis Vidal, Edwin Melendez,
and Bill Traylor. I would also like to thank my current and former colleagues at Milano and
the Community Development Research Center for their friendship and support. Special
thanks to Dan Immergluck and Kirk McClure for their insightful and timely reviews of the
draft manuscript. I am very grateful to editor Dave McBride for his encouragement and
support and to Angela Chnapko at Routledge and Judith Simon at Taylor & Francis for
their help and guidance in bringing this book to completion. Thanks also to Pat Lewis of
the Council of Large Public Housing Authorities, Edwin Lowndes of the Housing Authority
of Kansas City, and Jan Pasek of the Philadelphia Housing Authority for providing “before”
and “after” photos of HOPE VI developments.
I am especially grateful for the close reading provided by my father, Charles Schwartz.
My daughter, Annie Schwartz, who has long asked me to explain what I do, kept me going
with her irrepressible company. Finally, the book would never have been more than a
dream were it not for the encouragement and inspiration provided by my wife, Jennifer
Fleischner. She also read the draft manuscript with care and put up with stacks of papers
and books in the living room. I can’t thank her enough.
Any errors of fact or interpretation are my responsibility alone.

ix


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1

INTRODUCTION

In its preamble to the 1949 Housing Act, Congress declared its goal of “a decent home in a
suitable living environment for every American family.” In the more than 50 years since
this legislation was passed, the federal government has helped fund the construction and
rehabilitation of more than 5 million housing units for low-income households and provided rental vouchers to nearly 2 million additional families. Yet, the nation’s housing
problems remain acute. In 2003, 46 million households lived in physically deficient housing, spent 30% or more of their income on housing, or were homeless (National Low
Income Housing Coalition 2005a; Harkness 2005). Put differently, 94 million Americans
— almost 35% of the nation’s population (National Low Income Housing Coalition 2005a)
and more than double the number lacking health insurance — confronted serious housing
problems or had no housing at all.
This book tells the unfinished story of how the United States has tried to address the
nation’s housing problems. It looks at the primary policies and programs designed to make
decent and affordable housing available to Americans of modest means. It examines
the strengths and weaknesses of these policies and programs and the challenges that still
remain. The book takes a broad view of housing policy, focusing not only on specific housing subsidy programs, such as public housing, but also on the federal income tax code and
regulations affecting mortgage lending, land use decisions, real estate transactions, and
other activities integral to the housing market. Although some of these broader aspects of
housing policy provide financial incentives for investments in affordable housing, others
attempt to make housing available to low-income and minority households and communities by penalizing discriminatory practices and through other regulatory interventions.

Put simply, then, this book is about policies and programs designed to help lowincome and other disadvantaged individuals and households access decent and affordable
housing. It examines programs and policies that subsidize housing for low-income households or that attempt to break down institutional barriers, such as discriminatory practices
in the real estate industry, that impede access to housing.
1


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2 • Housing Policy in the United States

The book is intended to be a general overview of housing policy. It is beyond its scope
to delve deeply into programmatic details or to cover all aspects of the field in equal depth.
The focus is on federal and, to a lesser degree, state and local programs and policies that
subsidize housing for low-income households or otherwise attempt to make housing
accessible to this population. Much less attention is given to policies concerned with the
physical aspects of housing, such as design standards and building regulations — except
when they are explicitly employed to promote affordable housing. The book does not examine in detail the operation of housing markets or provide a comprehensive legislative history of housing policy.
Although the field of housing policy is relatively small — especially in comparison to
such areas as health care and education — it is fragmented and specialized. Most of the
field’s literature is technical and focused on particular subtopics, such as public housing
redevelopment, the expiration of federal housing subsidy contracts, mortgage lending regulation, and racial discrimination. Although these studies certainly cover key topics in
housing policy, they do so at greater length, at a higher level of detail, and with more technical jargon than is desirable for a general introduction to the field. I hope this text can
serve as a guide to housing policy and provide a point of departure to more specialized
readings.

WHY HOUSING MATTERS
Few things intersect with and influence as many aspects of life as housing does. Housing is
far more than shelter from the elements. As home, housing is the primary setting for family and domestic life, a place of refuge and relaxation from the routines of work and school,
a private space. It is also loaded with symbolic value, as a marker of status and an expression of style. Housing is also valued for its location, for the access it provides to schools,
parks, transportation, and shopping; and for the opportunity to live in the neighborhood

of one’s choice. Housing is also a major asset for homeowners, the most widespread form
of personal wealth.
Although good housing in a good neighborhood is certainly no guarantee against
tragedy and misfortune, inadequate housing increases one’s vulnerability to a wide range of
troubles. Physically deficient housing is associated with many health hazards. Ingestion of
lead paint by children can lead to serious learning disabilities and behavioral problems.
Dampness, mold, and cold can cause asthma, allergies, and other respiratory problems, as
can rodent and cockroach infestations (Bratt 2000; Kreiger & Higgens 2002)1. Inadequate
or excessive heat can raise the risk of health problems such as cardiovascular disease.
Research on the link between housing conditions and mental health is less extensive,
but also indicates adverse consequences from inadequate or crowded conditions. Unstable
housing conditions that cause families to move frequently are stressful and often interfere
with education and employment (Rothstein 2000). When low-income families face high
rent burdens, they have little money left to meet other needs. Vulnerability to crime is
strongly influenced by residential location. People who live in distressed neighborhoods
face a greater risk of being robbed, assaulted — or worse — than inhabitants of more affluent areas do (Bratt 2000).
1

See Kreiger and Higgens (2002) for a thorough review of the relationship between housing and health.


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Introduction • 3

Perhaps the importance of housing for the well-being of individuals and families is
brought into sharpest relief in light of the depredations of homelessness. The homeless are at
much greater risk of physical and mental illness, substance abuse, assault, and, in the case of
children, frequent and prolonged absences from school. The mere lack of a mailing address
makes it immeasurably more difficult to apply for jobs or public assistance, or to enroll children in school (Bingham, Green, & White 1987; Hoch 1998; Urban Institute 1999).

The Economic Importance of Housing
Housing is a mainstay of the U.S. economy, consistently accounting for more than one fifth
of the gross domestic product (GDP) (see Figure 1.1). In 2004, residential construction
and remodeling comprised 6% of GDP. An additional 11% derived from rental payments
and the equivalent payments made by homeowners. Spending on furniture, appliances,
utilities, and other expenses for household operation contributed another 7% to GDP.
The total value of the nation’s housing stock, at $13.4 trillion in 2003, comprised 39%
of all fixed assets and consumer durable goods. Residential construction in 2001
accounted for 3.5 million jobs and $166 billion in local income (Millennial Housing Commission 2002: 12).
At the local and regional level, housing is also critically important. The construction,
development, and sale of housing generate employment, income, and tax revenue. In addition to the employment and income generated directly through construction activity,
housing development generates indirect economic benefits from the expenditures of construction workers and vendors on locally supplied goods and services. Other economic
benefits derive from the consumer spending of the households residing in new housing.
The National Association of Home Builders estimates that construction of 100 new singlefamily homes generates about 250 full-time-equivalent jobs for the local community during the construction period and about $11 million in income for local businesses and
workers. The subsequent expenditures of the households that come to live in these 100
new homes generate an additional 75 jobs and $3 million in income annually (Millennial
Housing Commission 2002; National Association of Home Builders 2001).
Residential construction is also a major source of revenue for all levels of government.
In 2001, home building generated about $65 billion in taxes and fees. The development of
100 single-family homes generates about $1.2 million in local government revenue during
the year of construction. Afterward, the 100 units generate about $472,000 annually for
local governments through property taxes as well as other taxes and fees paid by homeowners (Millennial Housing Commission 2002; National Association of Home Builders 2001).
Housing also underpins the economy through home equity, which totaled more than
$8.4 trillion in 2003 (Joint Center for Housing Studies 2004). When interest rates are low
— as they have been since the mid 1990s — homeowners tap into this equity by refinancing their mortgages. Some do so to replace their previous mortgage with a lower cost loan,
thereby freeing up funds for other purposes. Many homeowners who refinance also take
out additional money to pay off credit cards and other loans or pay for home improvements, tuition, investments, and other needs.
In 2003 alone, homeowners took out more than $139 billion in cash from their home
equity (Housing and Urban Development [HUD]2004m), accounting for 45% of all mortgage refinancings. From 2000 through 2004, mortgage refinancing exceeded $7.9 trillion

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4 • Housing Policy in the United States

25%

20%

Percent of Total GDP

Household Operation

15%

10%
Housing Consumption

5%

Residential Investment

19

5
19 0
5
19 2
54
19

5
19 6
58
19
6
19 0
6
19 2
64
19
6
19 6
6
19 8
70
19
7
19 2
7
19 4
7
19 6
7
19 8
8
19 0
82
19
8
19 4

8
19 6
8
19 8
90
19
9
19 2
9
19 4
96
19
9
20 8
00
20
0
20 2
04

0%

Source: Bureau of Economic Analysis 2005

Figure 1.1

Housing’s contribution to gross domestic product (GDP).

in constant 2004 dollars (Joint Center for Housing Studies of Harvard University 2005:
Table A-4). Were it not for the wave of mortgage refinancing in the early 2000s, the economic recession of the period would have been more severe, and the subsequent slow

recovery would have been slower still. In addition to cash-out mortgage refinancings, the
profits realized from the sale of homes also contribute to the economy. Capital gains on the
sales of homes total about $125 billion a year (Millennial Housing Commission 2002: 12).

THE GOALS AND FORMS OF HOUSING POLICY
Housing policy is seldom just about housing. Nearly every housing program initiated since
the 19th century has been motivated by concerns that go beyond the provision of decent
and affordable housing. For example, the regulatory reforms of the late 19th and early 20th
centuries proscribing minimum standards for light, ventilation, fire safety, and sanitation
derived at least as much from a desire to stem the spread of infectious disease and curb
antisocial behavior, as from a wish to improve living conditions for their own sake (Marcuse 1986; Lubove 1962). Similarly, in passing the original public housing legislation in
1937, Congress was more interested in promoting employment in the construction trades
than in providing low-income housing (Marcuse 1986; Radford 1996; von Hoffman 2000).
In a recent appraisal of state and local housing programs since the 1930s, Katz et al.
focus on seven goals for housing policy, only two of which directly concern the affordability and physical adequacy of housing:
1. Preserve and expand the supply of good-quality housing units.
2. Make existing housing more affordable and more readily available.


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Introduction • 5

3.
4.
5.
6.
7.

Promote racial and economic diversity in residential neighborhoods.

Help households build wealth.
Strengthen families.
Link housing with essential supportive services.
Promote balanced metropolitan growth (Katz, Turner, Brown, Cunningham,
& Sawyer 2003).

Governments can shape housing policies in various ways. They can provide assistance
in the form of direct subsidies or through tax incentives. They can use their regulatory
powers to influence the availability of mortgage loans, the practices of real estate agents,
and the type, the amount, and the cost of housing that can be built in particular areas.
Direct subsidies can take the form of categorical federal programs, such as public
housing, or of block grants that give local governments more autonomy to develop their
programs. Subsidy programs can support the construction and renovation of specific
buildings, or they can provide rental vouchers to help families afford existing, privately
owned housing. Programs may favor particular income groups and households and individuals with particular needs (the elderly, the homeless, or persons with disabilities). Programs can emphasize the preservation of the existing stock of affordable housing
(subsidized or not) or the creation of additional units.
Policies may promote homeownership, rental housing, or alternative forms of tenure
— such as cooperatives and mutual housing. Policies also differ in the extent to which they
rely on government agencies for program implementation. Some, such as public housing
and rental vouchers, rely almost exclusively on government agencies; others involve partnerships with for-profit or nonprofit developers.

HOUSING POLICY IN THE UNITED STATES: AN OVERVIEW
Although most people probably associate housing policy in the United States with public
housing and other subsidies for the poor, the federal government provides a much larger
housing subsidy for the affluent in the form of tax benefits for homeownership. Whereas
fewer than 7 million low-income renters benefited from federal housing subsidies in 2003,
nearly 150 million homeowners took mortgage interest deductions on their federal income
taxes. Federal expenditures for direct housing assistance totaled less than $32.9 billion in
2004; however, mortgage-interest deductions and other homeowner tax benefits exceeded
$100 billion (see Figure 1.2). Moreover, the lion’s share of these tax benefits, for reasons

discussed in Chapter 4, go to households with incomes above $100,000.
In addition to the mortgage-interest deduction, other tax expenditures for homeownership include the deductibility of property tax payments, reduced taxes on the sale of
residential properties, and low-interest mortgages for first-time homebuyers financed by
tax-exempt bonds. The primary tax incentives for investing in rental housing consist of the
low-income housing and historic rehabilitation tax credits and low-interest mortgages
financed by tax-exempt bonds.
Excluding tax expenditures, the federal government provides subsidies for low-income
households in three basic ways: (1) supporting the construction and operation of specific
housing developments; (2) helping renters pay for privately owned housing; and (3) providing states and localities with funds to develop their housing programs.


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6 • Housing Policy in the United States

140,000

Millions of 2002 Dollars

120,000

100,000

Housing-Related
Tax Expenditures

80,000
60,000
40,000

Direct Expenditures for
Housing Assistance

19

76
19
77
19
78
19
79
19
8
19 0
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88

19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03

20
04

20,000

Source: Dolbeare and Crowley 2002

Figure 1.2

Direct and tax expenditures for housing in millions of constant 2002 dollars.

The first form of assistance, known as supply-side or project-based subsidies, includes
public housing, the nation’s oldest low-income housing program, established in 1937. It
also includes several other programs, such as “Section 8 New Construction,” in which the
federal government helps subsidize the construction and sometimes the operation of privately owned low-income housing. Although the federal government spends several billion
dollars annually on public housing and other supply-side programs, nearly all of this
money goes to the preservation or replacement of housing built before the mid 1980s.
Other than a small amount of housing designated for rural areas and for low-income elderly and disabled households, virtually no new housing has been built in the past two
decades with federal project–based subsidies.
Subsidies designed to help low-income households rent existing housing in the private
market were first established in the mid 1970s and in less than a decade became the dominant form of low-income housing assistance. Under this approach, the government provides low-income households with vouchers that cover the difference between 30% of their
income and a maximum allowable rent.
The third major form of federal housing subsidy consists of block grants that fund
housing programs crafted by state and local governments. States and localities usually
receive block grants on a formula basis and have latitude to use the funds for a wide range
of purposes, although block grant programs are not without restrictions on how the funds
can be spent. The oldest and largest block grant program, Community Development Block
Grants (CDBG), gives states and localities the most discretion in determining how funds
may be used. The HOME Investment Partnership program focuses on a narrower range of
housing activities than CDBG.

In total, nearly 6.9 million low-income households currently receive some form of
rental assistance. The single largest category, accounting for 2.0 million units, consists of


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Introduction • 7

privately owned housing with project-based federal subsidies. Rental vouchers come next,
with 1.8 million units.2 Public housing is the third largest category, with 1.2 million units.
The Low-Income Housing Tax Credit, tax-exempt multifamily bonds, and the HOME
program account for the remaining 1.9 million units of subsidized rental housing.3 Much
of this housing is subsidized by multiple funding sources. For example, the Low-Income
Housing Tax Credit has contributed to the development of more than 1.23 million rental
units (more than the entire stock of public housing); however, more than one quarter of
this housing was also financed with tax-exempt bonds, and other tax-credit projects also
received funding through the HOME program (see Table 1.1).
Housing policy is not limited to subsidy programs and tax incentives. It also affects
how housing is financed, developed, rented, and sold. In other words, housing policy is
also concerned with the institutions, regulations, and practices that shape the availability
of housing for low-income and minority households. The dramatic growth in homeownership after World War II, for example, was in large part due to federal intervention in the
housing finance system in the 1930s, which among other things instituted 30-year, fixedrate mortgages, federal mortgage insurance, and the secondary mortgage market.
Since the 1970s, the federal government has passed several laws and regulations
attacking mortgage lending practices that discriminate against minority neighborhoods
and households. Legislation passed in the early 1990s required key institutions in the housing finance system to increase their lending to minority and other “underserved” communities. Other legislation, such as the Fair Housing Act of 1968, focused on the
discriminatory behavior of real estate agents. Finally, building codes, zoning, and other
land use regulations shape the amount, type, and cost of housing that can be built within
individual communities.

ORGANIZATION OF THE BOOK

This book provides an overview of housing subsidy programs and of regulations that
attempt to make housing available to the disadvantaged. Chapter 2 sets the rest of the book
in context by summarizing key trends and patterns in the housing market. It traces housing construction trends over time, examines the nation’s major housing problems and the
people they affect and summarizes changes over time in federal expenditures on housing
assistance.
Chapter 3 describes how the nation’s housing finance system has evolved since
the start of the 20th century. Among other topics, it discusses the key role of the federal
government in reshaping housing finance during the New Deal, with the introduction of
government-insured mortgage insurance, the establishment of a secondary mortgage market, and the promotion of long-term, fixed-rate mortgages. The chapter gives particular
emphasis to the growing role of the secondary mortgage market and government-sponsored enterprises (Fannie Mae and Freddie Mac) in the housing finance system and in
making homeownership more available to low-income and minority borrowers.
2

3

Vouchers constitute the largest form of assistance provided by the U.S. Department of Housing and Urban Development.
About one fifth of privately owned housing with direct federal subsidies is assisted by the U.S. Department of Rural Services (formerly Farmers Home Administration). HUD programs account for about 1.5 million units of privately owned
housing.
The figures discussed here and presented in Table 1.1 do not reflect all federal housing programs, including the Community Development Block Grant program and programs for the homeless and people with AIDS.


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8 • Housing Policy in the United States

Table 1.1

Overview of Federally Subsidized Rental Housing in 2004

Program (year)

Total units

Percent of total

Notes

Rental vouchers (2004)

1,803,013

26%

Public housing (2004)

1,220,937

18%

Other project-based
subsidies (mostly 2003,
some 1999)

1,999,545

29%

Includes 434,000 units funded
through the Dept. of
Agriculture's Section 515

program plus 1,502,400
units of HUD-funded
housing

1,709,808

25%

Includes various projectbased Section 8 programs
that cover the difference
between 30% of tenant
income and the rent, as well
as housing for the elderly
and disabled

289,737

4%

Includes interest-rate subsidy
programs (Sections 236 and
221(d)3) without additional
subsidies and Section 8
Moderate Rehab program

Low-income housing tax
credits (2003)

908,563

13%

An additional 323,000 taxcredit units were also
financed with tax-exempt
bonds

Tax-exempt bond
financing (2003)

850,000

12%

HOME funding (2003)

113,553

2%

6,895,611

100%

Deep subsidy programs

Shallow subsidy
programs

Total

Assumes that only a third of
341,000 rental units funded
with HOME funds did not
also receive funding
through tax-exempt bonds
or tax credits

Sources: Vouchers, public housing: HUD, 2004i; Other project-based subsidies: National Housing Trust,
2004a, ICF Consulting Team, 2005, and Millennial Housing Commission, 2002; Low-income housing tax
credits: HUD, 2004j; Tax-exempt bonds: National Council of State Housing Finance Agencies, 2004, HOME:
National Council of State Housing Finance Agencies, 2005.


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Introduction • 9

Chapter 4 focuses on the importance of federal tax policy to housing. It details the different ways by which the federal government uses the tax code to subsidize homeowner
and, to a much lesser degree, rental housing. Among other topics, it shows the extent to
which tax subsidies for homeowner housing benefit affluent homeowners far more than
households of more modest means.
Chapter 5 looks at the Low-Income Housing Tax Credit, the most important tax
incentive for producing affordable housing and the largest active subsidy program for
rental housing today. The chapter describes the basic operation of the tax-credit program
and how it generates equity for low-income housing. It also provides an overview of the
existing stock of tax-credit housing, and an assessment of the program’s strengths and
weaknesses.
Chapter 6 turns to the oldest federal housing subsidy program, public housing. The
chapter traces the historical evolution of public housing and discusses the origins of the
program’s most critical problems, including concentrated poverty and social isolation,

poor physical condition, and deficient management. It also reviews recent efforts to reform
and rebuild public housing, most notably the HOPE VI program for the revitalization of
extremely distressed developments.
Chapter 7 focuses on federal programs that subsidize low-income housing built by private and nonprofit organizations. Combined, these programs have produced more than 1.9
million housing units. However, with the exception of the Section 515 program for rural
housing, they have funded virtually no housing since the 1980s. Unlike public housing,
which is owned by governmental authorities and has no limit imposed on the duration of
the subsidy, housing developed under these programs receives subsidies for a limited
period, after which it can convert to market rate occupancy. The challenge now is to preserve this housing for continued low-income occupancy.
In Chapter 8, the focus shifts from supply-side, project-based housing subsidy programs to demand-side approaches, specifically rental vouchers that allow low-income
households to lease rental housing in the private marketplace. The chapter traces the evolution of demand-side programs since their inception in 1974 and assesses the strengths
and weakness of this approach. It looks at trends over time in the ability of different types
of households to secure housing with vouchers and how these success rates vary in different housing markets. Finally, the chapter discusses the ability of rental vouchers to facilitate racial and economic integration.
In Chapter 9, the book broadens its focus from federal housing programs to programs
designed and administered by state and local governments, often with the close collaboration of nonprofit organizations. The chapter discusses how states and localities utilize federal block grants and tax-exempt bond financing for housing and how they are
increasingly using housing trust funds and inclusionary zoning to fund the development of
affordable housing. The chapter also summarizes the role of community development corporations and other nonprofit organizations as partners to state and local government in
delivering housing assistance.
Chapter 10 provides an overview of housing policies and programs that target individuals with special needs, including the homeless, the elderly, people with AIDS, and people
with mental illness. The chapter summarizes the development of key programs aimed at
these populations.


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10 • Housing Policy in the United States

Chapter 11 turns from housing subsidy programs to programs and policies that rely on
laws and regulations to make housing accessible and available to low-income and minority
households. The chapter summarizes the impact of racial discrimination in housing and

mortgage markets on the housing opportunities available to minority households, as well
as the success of fair-housing and fair-lending laws in combating such discrimination.
Chapter 12 discusses two dominant themes in housing policy today: homeownership
and income integration. It examines how all levels of government are promoting homeownership and the integration of low-income and more affluent households within the
same communities and housing developments. The section on homeownership will summarize the variety of ways by which government is seeking to increase homeownership
among low-income and minority households, including down-payment assistance, soft
second mortgages, and regulatory measures affecting the secondary and primary mortgage
markets. The section on income integration will summarize a variety of programs aimed at
moving public housing residents and other low-income households into middle-income
neighborhoods and creating mixed-income housing developments.
Finally, Chapter 13 reflects on some of the recurring themes raised in the previous
chapters and discusses their implications for future directions in federal housing policy. It
looks at how the priorities of housing policy have evolved over time and the mechanisms
used to pursue them. In doing so, it assesses the extent to which federal housing policy has
succeeded in addressing the nation’s housing problems and the areas in which it falls short.


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2

TRENDS, PATTERNS, PROBLEMS

INTRODUCTION
Until World War II, a majority of households in the United States were renters, city dwellers vastly outnumbered suburbanites, and the most pressing housing problems concerned
the physical condition of the stock. Today, renters account for only one third of all households, suburbs house far more people than cities, and affordability has supplanted physical
deficiency as the primary housing problem.
This chapter will provide a brief overview of the most important trends in the housing
market, with a focus on housing affordability. Data become dated quickly, so the chapter
will emphasize long-term trends. It will concentrate on the demographic and other characteristics of households with affordability problems and the extent to which physical deficiencies and crowding remain a problem. In addition, the chapter will also examine the

most fundamental housing problem of all: homelessness. It will also trace trends in federal
funding for housing.

HOUSING CONSTRUCTION TRENDS
Since 1975, the construction industry in the United States has produced on average more
than 1.75 million homes annually. As a result, much of the nation’s housing stock is quite
new. More than one fifth of the nation’s homeowners in 2003 and one quarter of all suburban homeowners lived in housing built no earlier than 1990. Conversely, only one fifth
of all homeowners and less than one third of all renters live in housing built before 1950
(see Table 2.1).
Although residential construction trends have always been cyclical, expanding and
contracting with changing macroeconomic conditions and changes in the availability and
cost of mortgage credit, this characteristic has become less extreme since the mid-1980s.

11


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12 • Housing Policy in the United States

As will be discussed in Chapter 3, this partly reflects the growth of the secondary mortgage
market and the increasing integration of housing finance within global financial markets.
Since the mid-1980s, residential construction has been heavily dominated by singlefamily homes. As shown in Figure 2.1, single-family structures account for a large and
growing proportion of annual housing starts. Single-family structures accounted for more
than 77% of total housing starts in 2004, up from less than 56% in 1980 and 65% in 1990.
The increasing dominance of single-family housing in part reflects the sharp decline in
multifamily housing in the late 1980s.
Table 2.1 Location of Housing by Year of Construction (Percent Distribution)
Homeowners
Year

structure
built

Total

1990–2003
1980–1989
1970–1979
1960–1969
1950–1959
Before 1950
Total

21.7
13.4
18.5
12.7
12.0
21.7
100.0

Renters

Nonmetropolitan
Central
areas
Total
cities Suburbs
14.1
10.3

14.3
14.0
15.2
32.2
100.0

25.6
15.4
19.3
12.8
11.9
15.0
100.0

20.0
11.6
20.8
11.1
9.2
27.2
100.0

11.4
14.6
21.2
13.7
9.6
29.6
100.0

Nonmetropolitan
Central
areas
cities Suburbs
7.9
10.0
19.6
13.5
11.0
38.0
100.0

14.5
20.1
22.5
15.0
8.8
19.1
100.0

12.9
12.5
22.1
10.3
8.0
34.3
100.0

Source: U.S. Census Bureau 2004c.

1,800
1,600
1,400

Thousands of Units

Single-Family Housing
1,200
1,000
800
600
Multi-Family Housing

400
200
Manufactured Housing

19
7
19 5
76
19
77
19
78
19
7
19 9
80
19

81
19
82
19
8
19 3
84
19
8
19 5
86
19
87
19
88
19
89
19
9
19 0
91
19
92
19
93
19
94
19
95
19

96
19
97
19
98
19
99
20
00
20
0
20 1
02
20
03
20
04

0

Source: U.S. Census Bureau 2004a, 2004b

Figure 2.1

Annual housing starts by building type, 1975 to 2004.


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Trends, Patterns, Problems • 13

As will be discussed in Chapter 3 and Chapter 4, changes in the mortgage finance system and the federal income tax code greatly reduced investment in rental housing. Multifamily housing starts have edged upwards since the mid-1990s, but they remain well below
the volume of the early 1980s. During most of the 1990s, multifamily construction was
eclipsed by manufactured housing. Shipments of mobile homes and similar types of manufactured homes equaled or exceeded multifamily housing starts most of the period,
although the number of manufactured homes put in place has declined since the late 1990s
in large part due to problems in this segment of the mortgage lending industry and also to
excess production in the previous period (Apgar, Calder, Collins, & Duda 2002).
Most of the nation’s residential construction is taking place along the fringes of urban
America and outside the Northeast, as illustrated in Table 2.2. For example, two out of
three owner-occupied homes built from 2000 to 2003 are located in the suburbs, as are
more than half of all occupied rental units. Only 16% of owner-occupied homes and 29%
of occupied rental units built in this period were located in central cities. Nonmetropolitan
areas claimed about 18% of all new owner units and 16% of the rental. The South dominates every other region in new home construction. It accounts for nearly half of all owner
and rental units built from 2000 through 2003. The West and Midwest each account
for about one fifth of the new housing stock, with the Northeast lagging far behind with
just 9%.
Housing has become larger and more luxurious over time. The median size of owneroccupied homes has increased steadily from 1973 to 2004, rising from 1,526 to 2,195
square feet. Multifamily units have also become larger, but not to the same degree as
single-family homes. The percentage of new single-family homes built with central air
conditioning has increased from 49% in 1973 to 88% in 2003—reflecting the southern tilt
of home construction as well as increasing levels of amenity. Similarly, the proportion of
new homes constructed with two or more full bathrooms has increased from 60% in 1973
to 95% in 2003 (U.S. Census Bureau 2005a) (see Table 2.3).

TENURE
In only two decades, the predominant form of housing tenure in the United States changed
from renting to ownership. A majority of the nation’s households rented their homes
through 1940. From 1940 to 1960, the national homeownership rate shot up from 44 to
Table 2.2

Location of Occupied Housing Built 2000 to 2003
Homeowners
Renters
Total units (thousands)
4,672
1,019
Percent distribution:
Inside metropolitan areas
81.6
84.3
In central cities
15.9
28.6
In suburbs
65.6
55.8
Outside metropolitan areas
18.4
15.6
Northeast
Midwest
South
West

Source: U.S. Census Bureau 2003c.

9.5
21.3
46.8
22.4

8.6
19.5
46.7
25.1

Total
5,691
82.1
18.2
63.9
17.9
9.4
21.0
46.8
22.9


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14 • Housing Policy in the United States

62%, an increase driven in large part by fundamental changes in the housing finance system—changes shaped by federal policy, as discussed in Chapter 3. As shown in Figure 2.2,
homeownership increased by only 2.5 percentage points over the subsequent two decades.
Homeownership rates declined slightly in the 1980s, but turned around in the 1990s,
setting new records nearly every year since the late 1990s. As discussed in Chapter 3,
Chapter 11, and Chapter 12, recent increases in homeownership reflect a combination of
favorable economic conditions, low-interest rates, and changes in mortgage underwriting
practices and standards derived in large part from increased federal regulatory pressure to
improve mortgage lending to low-income and minority households.

Table 2.3

Selected Characteristics of New One-Family Houses

Median square feet

Percent equipped
with air
conditioning

Percent with two
or more full
bathrooms

1973

1,535

49

60

1983

1,565

70

72

1993

1,945

78

88

2003

2,162

88

95

Year of
completion

Source: U.S. Census Bureau 2005a.
80

70

60

Percent

50

40

30

20

10

0

1900

1910

1920

1930

1940

1950

1960

1970

1980

1990

2000

2004

Source: U.S. Census Bureau 2005c, 2005d, 2005e

Figure 2.2

U.S. homeownership rate, 1900 to 2004.